China IPOs - 3 are hot, 3 are not
China stocks are hot as investors hope to get in on a huge growth opportunity.
China stocks are hot. The average year-to-date gain for the Shanghai index is over 80%.
Not surprisingly, while companies in the U.S. have avoided public offerings this year, China, by contrast, has simply dominated the IPO market
However, China also offered up its share of duds in 2009. Some picks fared much worse than domestic stocks and look like they will continue to lag the market in 2010.
5 China Stocks You Must Own Now
Here’s my take on the three best IPOs and the three worst IPOs to come out of China in the past year:
#1 Best China IPO: Lihua International
Lihua International (LIWA), a maker of copper products, only recently joined Wall Street with an IPO at the beginning of September. But since then, shares have jumped over 120% from a debut price of $4 to over $9 right now.
Clearly, LIWA made the right decision by not waiting for the U.S. market to recover before launching its IPO. Copper prices have doubled so far in 2009, and China stocks have been red-hot, so this company was just what investors were looking for.
#2 Best China IPO: Chemspec International
Tri-Tech (TRIT) is another China stock that offered shares in September. The company develops software and hardware so the Chinese government can keep tabs on natural and municipal water supplies.
Agriculture is a huge industry in China, and TRIT plays a big role in irrigation. Similarly, the booming urban centers in the People’s Republic place massive demands on water and wastewater infrastructure, and require constant monitoring. Tri-Tech’s close connections to Beijing have allowed the company to tap into huge contracts, driving up shares 110% from the company’s IPO price of just $6.75 a few months ago.
#3 Best China IPO: Changyou.com
Changyou.com (CYOU) develops and operates online games in China. Primarily, the company makes its money from massively multiplayer online games.
The Chinese population really loves these titles, and as more and more Chinese people get access to the Internet, CYOU’s games gain in popularity. This has sent shares skyrocketing. After an IPO in April, with an initial pricing of $16 a share, Changyou.com’s stock has more than doubled so far in 2009.
#1 Worst China IPO: NIVS IntelliMedia
NIVS IntelliMedia Technology (NIV) is a leader in audio and video consumer products that include massive stereo systems and home theaters. U.S. consumers simply haven’t been buying these items, and NIV has paid the price. Shares of NIVS IntelliMedia are down 35% since their initial offering on March 12. Adding insult to injury is that this stock made its grand entrance to the market within days of the broader market’s lows, and the major indexes have surged about 65% in the same time.
#2 Worst China IPO: Chemspec International
Chemspec International (CPC) engages in the manufacture and sale of specialty chemical compounds, particularly those used in liquid crystal displays, semiconductors and other electronics products.
Just like NIV, this company has really been hurting as fewer consumers purchase big-ticket tech items. The result has been a 35% loss in shares since this company’s IPO in June, even while the S&P 500 has managed to post a gain of over 20%.
#3 Worst China IPO: ZST Digital Networks
ZST Digital Networks (ZSTN) makes digital and optical network equipment for Internet and cable TV operators in China. On the surface, this sounds like a really great business to be in as the nation gets more and more wired.
However, it’s important to note that the rise of cable television in the U.S. was long before WiFi and satellite TV, so ZSTN is a bit of an anachronism for the 21st century. Shares have already slipped about 20% since the company debuted less than one month ago on October 20.
The first three IPOs posted some serious gains in a short amount of time, and it can be tempting to jump on the bandwagon. However, with any IPO, the tide can turn from hot optimism to cold reality in a heartbeat -- as we saw with the second three IPOs.
I have a guideline for IPOs that I use and would like to share with you: Don’t buy them until they can prove they are worth owning.
When new IPOs come to market, there is often little known about the company and therefore buying pressure is based on the expectation of what the company can do going forward.
I like to see real numbers before putting my money on the table. I like to wait for a quarter or two of results to come out before buying in and I recommend you do the same.
At the time of publication, Louis Navellier did not hold positions in any of the companies mentioned in this article.
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